Powell vs. Trump Is Shaking Markets & Crypto’s “Clarity Bill” Is Falling Apart?

The third week of January has proven to be a pivotal moment for the cryptocurrency industry, defined by legislative gridlock in the Senate and high-stakes drama at the Federal Reserve. While the markets have seen positive price action for Bitcoin and Ethereum, the true volatility is occurring in the halls of Washington. The "Clarity Bill"—arguably the most significant piece of legislation for the industry—is facing severe headwinds, while macro pressures mount against the Fed.

From Coinbase withdrawing legislative support to silver’s parabolic run, the narrative is shifting from pure technology to a battle over sovereignty and regulatory capture. Below is a breakdown of the critical developments shaking the markets this week.

Key Takeaways

• The Clarity Bill is in Jeopardy: Coinbase has withdrawn support for the current version of the digital market structure bill, citing de facto bans on tokenized equities and restrictive DeFi provisions.
• Institutional War on Yield: The banking lobby is aggressively campaigning to prevent stablecoin issuers and exchanges from passing yield to end-users, aiming to protect traditional deposit market share.
• Fed Independence Challenged: The Trump administration’s DOJ has opened a criminal investigation into Jerome Powell, signaling a direct clash between the executive branch and the Central Bank.
• Hard Assets Rally: While crypto posted healthy gains, silver skyrocketed 43% on the month, outperforming digital assets in the "sovereignty trade."
• Polygon’s Strategic Pivot: Through recent acquisitions, Polygon is effectively verticalizing its stack to become a specialized stablecoin infrastructure chain.

The Battle for the Clarity Bill

The "Clarity Bill," officially the legislation intended to provide market structure and legal certainty for digital assets in the U.S., has stalled amidst intense negotiation and "horse trading." The bill aims to define digital commodities versus securities and split jurisdiction between the SEC and CFTC. However, the current iterations have sparked a divide within the crypto industry itself.

The Bank Lobby vs. Stablecoin Yield

A primary sticking point in the negotiations is the treatment of stablecoin yield. The banking lobby is exerting significant pressure to ensure that yield generated from the assets backing stablecoins cannot be passed on to users. Currently, while issuers like Circle cannot directly pay interest, exchanges like Coinbase offer rewards to holders.

Banks view this as an existential threat to their credit creation model and are lobbying to close these loopholes. Critics argue there is no valid policy reason for this restriction other than protecting the incumbent banking sector's profit margins.

Coinbase Withdraws Support

In a significant move, Coinbase has publicly withdrawn its support for the current draft of the bill. CEO Brian Armstrong indicated that the proposed legislation, in its current state, is worse than no legislation at all.

"We’ll keep fighting for all Americans' economic freedom, of course, but we’d rather have no bill than a bad bill. Hopefully, we can get a better draft."

Coinbase’s grievances include a de facto ban on tokenized equities, onerous disclosures for startups that mirror public company requirements, and vague language that could force DeFi interfaces to perform KYC on all users.

The "Code is Not Crime" Defense

Despite the gridlock, there is a silver lining: the Blockchain Regulatory Certainty Act (BRCA). Sponsored by Senators Lummis and Wyden, this bill is being bundled with the broader legislation. It aims to protect non-custodial developers—those who write code but do not handle customer funds—from being classified as money transmitters. This provision is seen as a critical shield for DeFi innovation and a legislative defense against the types of prosecution faced by developers like Roman Storm.

Macro Volatility: The Fed and The Sovereign Trade

Beyond crypto regulation, the broader financial markets are reacting to unprecedented tension between the White House and the Federal Reserve. The Department of Justice has served the Federal Reserve with grand jury subpoenas regarding a renovation project, a move widely interpreted as political leverage.

Powell Under Siege

Jerome Powell released a video statement addressing the investigation, framing it as an attack on the Federal Reserve's institutional independence. Analysts suggest the administration is utilizing "lawfare" to pressure the Fed into lowering interest rates—a move that would align with political goals of lowering consumer costs.

"This unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure... It is not about Congress's oversight role."

Silver and Gold Outperform

In the wake of this institutional instability, hard assets have reacted violently. While the S&P 500 remained relatively flat, silver surged over 40% in a month, and gold is up 70% on the year. The U.S. Mint was forced to suspend sales of silver coins due to the volatility.

Cryptocurrency also saw gains, with Bitcoin pushing toward $96,000 and Ethereum reclaiming $3,300. However, digital assets are arguably lagging behind precious metals in this specific "Fed independence" trade, suggesting crypto is still fighting to shed its "forgotten asset class" status in the eyes of traditional macro investors.

On-Chain Metrics and Industry Shifts

While prices grind upward, fundamental on-chain metrics and corporate strategies are evolving rapidly.

The Activity Flippening

For the first time in history, Ethereum’s 7-day moving average of active addresses has surpassed Bitcoin’s. This shift is attributed to the massive scaling of Layer 2 solutions and the plummeting cost of Layer 1 transactions, which are now hovering around $0.016—prices comparable to sidechains like Polygon.

Polygon’s Vertical Integration

Polygon is making aggressive moves to redefine its position in the market. No longer content with being a generalized Layer 2, the network is pivoting toward payments and stablecoins. This week, Polygon acquired CoinMe (a licensed fiat on/off ramp) and Sequence (wallet infrastructure) for approximately $250 million.

This signals a trend where chains must become specialized "app chains" or verticalized stacks. By owning the on-ramps and the wallet infrastructure, Polygon is positioning itself to compete directly with payment giants like Stripe rather than just other blockchains.

Cultural Indicators and Market Sentiment

The intersection of culture and finance continues to produce bizarre and telling moments.

The NYC Memecoin Debacle

Former New York City Mayor Eric Adams launched "New York City Coin" (NYC) on Solana, marketed as a tool to fight hate speech. The token briefly hit a $600 million valuation before liquidity was pulled, crashing the price. While Adams claims the liquidity moves were for management purposes, the optics mirror a classic "rug pull," damaging the credibility of political figures entering the crypto space.

Prediction Markets Enter the Mainstream

Poly Market continues to assert itself as a source of truth. The platform was visible at the Golden Globes, displaying live odds for award winners. More seriously, prediction markets are currently the most reliable indicators for geopolitical stability, with high volume on markets predicting regime changes in Iran and Venezuela. As traditional media struggles with trust, these markets provide a raw, probability-based view of global events.

Conclusion

The industry is currently in a holding pattern. We are waiting to see if the Senate can reconcile the pro-innovation stance of the crypto lobby with the protectionist instincts of the banking sector. Simultaneously, the macro environment provides a perfect storm for sovereign assets, yet crypto has yet to fully capture the momentum seen in precious metals.

The next two weeks are critical. The Senate Agriculture Committee has rescheduled its markup for late January. Whether the industry gets a "Clarity Bill" that fosters innovation or one that stifles it remains a coin flip—currently priced at 44% on prediction markets.